Large investment houses like CBRE Global Investors have seen their separate accounts business flourish since the outbreak of the financial crisis, but not without a cost.

Large investment houses like CBRE Global Investors have seen their separate accounts business flourish since the outbreak of the financial crisis, but not without a cost.

Separate accounts are often more complex, demanding and labour intensive to manage than fund vehicles, noted Pieter Hendrikse, CEO of CBRE Global Investors Europe, in an interview. ‘We have special teams for one client. It’s a new way of doing business, often involving a mix of indirect and direct investment.’

The effect of regulation and the sheer volume of capital are also creating additional investment pressure and risks, he added. ‘As an investment house, we have different mandates, but scarcity of the property available is an issue. The available assets are not always of the quality that we want to invest in. We can only do that if we can be certain about the management solution. Nor can we forget our responsibility in terms of the regulative environment. We have a bandwidth in which we can operate and the regulative effects must not be underestimated. They have an enormous impact on the way we do things, on our reporting and the control of the business.’

MORE CONTROL
CBRE GI has seen its fund business stagnate in recent years, but it has succeeded in expanding its separate account business, Hendrikse said: ‘More clients want this type of structure. It has to do with the past and some negative experiences with funds where investors were confronted with lack of control and liquidity. Through our separate accounts, we serve the same type of clients and money but in a more direct way, on a one-to-one basis. We also offer joint ventures, club deals and multimanager programmes in addition to funds and fund of fund programmes. Everybody still has the choice and we are still active in the same regions with the same strategies and form of execution.’

Hendrikse conceded that new regulation is to some extent curtailing entrepreneurial freedom at a time that investors are becoming increasingly critical. ‘You can’t afford to make mistakes in the new environment, to provide lower quality management solutions or to drift away from the strategy and discipline. That makes for a lot of hassle at times - and hard work. As an investment manager, you need to offer the right balance of caution and entrepreneurial spirit. That’s not easy and it means you have to have your internal house in order and train all your staff on what the effects of regulation are. Everybody needs to know what they can and can’t do.’

The retail and logistics sectors remain a pan-European play whereas offices is more of a city play, Hendrikse said. ‘Allocations can be divided into different buckets and styles and into global or regional-specific strategies. It can be complex and you need to organise things extremely well, but we don’t do everything. We are always making choices although we don’t have such conflicting strategies. If we have to choose between clients or vehicles, we have a very well-defined and well-tested allocation policy. It’s extremely transparent.’ Transparency is vital in terms of CSR issues, Hendrikse added. ‘Awareness of the importance of responsible investment needs to be in our DNA. Investment managers can’t play with the pension premiums of nurses or civil servants. We need to be transparent about what a product costs and where the added value is.’

FOLLOW-ON RETAIL VEHICLE
Since the outbreak of the crisis, CBRE Global Investors has failed to make a splash with new fund vehicles, but earlier this year Florencio Beccar, head of CBREGI's retail strategies, told PropertyEU that the investment giant is considering launching a new €1 bn shopping centre investment strategy to combine exposure to Europe's core markets with Southern Europe and CEE. The new strategy would be a follow-on vehicle from its first European shopping centre fund and will seek to raise €500 mln of equity, versus the €380 mln raised by Fund I. Similarly to Fund I, the new initiative will look for core-dominant shopping centres offering an opportunity to extend and re-gear leases near expiry to enhance rental income before selling the assets to core buyers.

While CBRE GI has had to modify the ambitions of its pan-European retail fund, the market is now moving into a more favourable phase, Hendrikse said. ‘We’re seeing a lot of positivism in the market and not too much opportunistic behaviour. We’re entering into a new generation of investing with new professionals, new tools, thoughts and insights. We’ve learned from the wave of transparency, indices and specialist organisations and underwriting of deals is more thorough than in the past. The leverage effect is no longer a key tool to make returns. It took us seven years took to get here, but we are now in a better situation than in the past. Our European Shopping Centre Fund is investing and managing the shopping centres in the fund very well, but we don’t want to drop the ball. There is a lot of collaboration and very active management on every shopping centre, the tenants and any situation that we can create value with.’

CBRE GI aims to have the first closing of the follow-up retail strategy before year end, depending on the approvals required under the new European AIFMD regulations.

Commenting on the Ukraine/Russian crisis, Hendrikse said it was too early to say whether this would have repercussions on CEE or CBREGI’s plans to invest in the region. Aside from its shopping centre fund, CBRE GI also has a pan-European core fund with a diversified investment strategy encompassing retail but also logistics and offices. The company recently issued a statement stressing 'the importance of the EU and the US imposed sanctions on transactions with Russia' and said it had implemented measures to comply with these (and future) regulations.

Prospects in the region for both funds are very promising, Hendrikse commented. 'But we are monitoring the situation and constantly questioning what the impact will be. We need to prepare for the situation and exercise caution if necessary.’